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Chart of the Day

Today’s chart provides some long-term perspective in regards to the gold market. As today’s chart illustrates, the massive bull market in gold that began in early 2001 is alive and well. In fact, as today’s chart illustrates, the pace of the gold bull market has only increased over time. Since peaking in early September 2011, however, gold has retreated. Each pullback has brought gold back down to support (green line) of its accelerated uptrend. Over the past two weeks, gold has declined once again and has crossed below the $1700 per ounce level and is once again testing support.

A deflationary environment will determine the governments and central banks to print more money. Or, rather they are printing now, fearing a possible deflationary spiral. So this scenario may be favourable for gold and especially gold stocks, except not to degenerate into hyperdeflation. In fact, if we look at the evolution of gold and gold stocks in previous crises we can see this. The Great Depression initially was a deflationary event but it concluded in inflation. There was deflation in the 1930s and huge inflation in the 1940s. Yet the gold stocks performed far worse in the 1940s. How did the gold stocks do in the 1970s? Gold stocks unperformed gold despite a rising gold price, probably because of rising commodity prices and rising inflation, gold companies didn’t benefit as much as we’d expect. In relative terms, gold stocks were better performers in the 1960s. So what I want to point out is a deflationary environment that is likely to turn into inflationary one may be properly to invest in gold stocks and even in gold.

Ahh, so you assume that central banks will intervene further? I think so to. And contrary to a popular myth these days, long periods of cheap money will lead to inflation. But it will take some time. In the medium term, up to 5 years, I expect asset prices lower on the back of continuing recession. I am actually preparing a presentation for some clients about the Romanian economy which also includes some global perspectives. I will post most of it, without the forecasts.🙂

JPM just released a note and downgraded commodities to underweight. This is the link to “Commodity phase shift” full report:http://www.scribd.com/doc/73569264/JPM-Phase-Shift
And by the way, what do you think about this chartoftheday, given that spanish, italian, french yields keep rising?